The process of measuring profit is an important business activity. Profit measures are the primary basis for understanding financial performance and value creation in a business. Once a business is owned publicly, an independent review of a firm's financial position becomes a mandatory process well known as measuring profit according to “generally accepted accounting principles” (GAAP.) While these standards and regulations are adequate for an external view of a company's financial condition, the measurement of profit contribution amongst the business is required for proper management of the franchise. Internal financial performance measurement is especially complex for a multi-product, multi-location, and/or large customer based businesses. The use of internal financial performance measures drives most businesses planning processes, management incentive processes and control processes. Many businesses have found that internal profit measures can be consistent with the external financial statement measures. These businesses implement internal accounting processes consistent with external measures using common metrical units similar to a GAAP Financial Statement presentation—a consistent metric or “yard stick” (i.e. numerically the sum-of-the-profit-parts equals the whole company's profit according to GAAP.)
Many businesses today are struggling to accurately measure profit contribution at a level necessary to accurately measure profit contribution of individual customer interactions. The reason for dilemma is found in the manner in which generally accepted accounting principles are applied. Fundamental accounting theory takes lumpy cash flows that occur in the day-to-day management of a business conducted with its customers and transform them into smoothed income or expense items (known as accruals.) At the end of every profit reporting cycle these income and expense items are consolidated into a period end balance sheet and income statements. Reports on the state of the business can then be presented by accountants in formats necessary for the independence of ownership and management that is the basis of capital markets. Indeed, most businesses today would call its accounting process critical for survival. Unfortunately, the complexity of maintaining an accurate financial accounting process has obscured the measurement of profit contribution at a very detailed level. While the aggregate cash flows of a large company are relatively stable the individual customer-to-business cash flows are very volatile. Accounting practice to date has been comfortable with using aggregate cash flow information for the accrual accounting process (10), as illustrated in FIG. 1. The accounting process based on aggregates has lead to blindness by businesses of incremental customer profit contribution measures necessary to implement customer level decision making, particularly in large businesses with many millions of customers.
General Ledgers (double entry book keeping systems) (11) were early adapters of automated data processing solutions due to the match between computing capabilities of computers and the execution of the accounting process. The benefit, from reduced cost for accounting processes easily justified large expenditures in information processing technology, both in hardware and in software development. The complexity of today's general ledger applications and the age of these systems have retarded the innovation of new automated techniques taking advantage of technological advances in massively parallel computing capability.
References describing generally accepted accounting principles and financial performance measurement procedures are listed below, and are incorporated by reference herein:
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There remains, however, a need to resolve profit measures at a detailed level without using analytical models or statistical extrapolation. Such a process should utilize rule driven and data base measurement processes which will give large scale businesses a lower cost of maintenance and a technologically scalable tool to measure profit at a level of precision or resolution not possible in prior financial performance measurement processes. The present invention fulfills this need and provides other related advantages.